1. Navigation and trade by ship along a coast, especially between ports within a country. Since the 1920 Jones Act, this has been restricted in the U.S. to domestic shipping companies.
2. Air transportation within a country. Often restricted to domestic carriers, in an example of barriers to trade in services.

A group of agricultural exporting countries, currently (August 2018) numbering 19, that was formed in 1986 to act as a counterweight especially to the EU in international negotiations on agriculture. Named after the city in Australia where the group first met, in August 1986.

Calibration

In economic models, particularly computable general equilibrium models, this refers to the assignment of values to parameters so as to align the model with real-world data.

California effect

The possibility that international trade and FDI will induce countries with low environmental standards to raise them closer to those in high-standards countries. Due to Vogel (1995), who recalled California repeatedly raising environmental standards to be followed by other states and the nation.

Call option

A financial contract that permits (but does not require) the buyer of the option to buy a commodity or financial instrument (perhaps a currency) from the seller of the option at a specified price and during a specified time period. Also just called a "call." Contrasts with a put option.

The 5th ministerial meeting of the WTO held in Cancún, Mexico, September 10-14, 2003 as part of the Doha Round. The meeting failed to reach agreement on a framework text for the round because of disagreements between the US/EU and the developing-country G-20, mostly over agricultural subsidies.

The term used repeatedly in the Doha Declaration referring to the assistance to be provided to developing countries in establishing and administering their trade policies, conducting analysis, and identifying their interests in trade negotiations.

A country is capital abundant if its endowment of capital relative to other factors is large compared to other countries. Relative capital abundance can be defined by either the quantity definition or the price definition.

Capital account

1. (Current definition) Since sometime in the 1990s, "capital account" refers to a minor component of international transactions, involving unilateral transfers of ownership of property. The common definition, below, describes what is now called the financial account.
2. (Common definition) A country's international transactions arising from changes in holdings of real and financial capital assets (but not income on them, which is in the current account). Includes FDI, plus changes in private and official holdings of stocks, bonds, loans, bank accounts, and currencies.
3. (Bretton-Woods definition) Same as common definition except excluding official reserve transactions. This definition was used under the Bretton Woods System of pegged exchange rates, but is less meaningful under floating exchange rates.

The ratio of a bank's capital to its risk-weighted credit exposure (liabilities). International standards, such as Basel III recommend a minimum for this ratio, intended to permit banks to absorb losses without becoming insolvent, in order to protect depositors.

The increase in value that the owner of an asset experiences when the price of the asset rises, including when the currency in which the asset is denominated appreciates. Contrasts with capital loss.

Capital good

A good, such as a machine, that, once in place, becomes part of the capital stock.

Capital inflow

A net flow of capital, real and/or financial, into a country, in the form of increased purchases of domestic assets by foreigners and/or reduced holdings of foreign assets by domestic residents. Recorded as positive, or a credit, in the balance on capital account.

Capital infusion

An increase in financial capital provided to a bank, corporation, or other entity from outside.

Capital intensity

A measure of the relative use of capital, compared to other factors such as labor, in a production process. Often measured by the ratio of capital to labor, or by the share of capital in factor payments.

Capital intensive

Describing an industry or sector of the economy that relies relatively heavily on inputs of capital, usually relative to labor, compared to other industries or sectors. See factor intensity.

Capital-labor ratio

The ratio of the quantity of capital (usually only physical) to the quantity of labor, usually as employed in a particular industry, but sometimes referring to the entire factor endowment of a country.

Capital loss

The decrease in value that the owner of an asset experiences when the price of the asset falls, including when the currency in which the asset is denominated depreciates. Contrasts with capital gain.

Capital market

A broad term, encompassing all the many mechanisms by which saving can be conveyed to those who wish to use it for investment. Most obviously, it includes the markets for stocks and bonds.

Capital market imperfection

Anything that interferes with the ability of economic agents to borrow and lend as much as they wish at a rate of interest that truly reflects probability of repayment. A common source of imperfection is asymmetric information.

Capital mobility

The ability of capital to move internationally. The degree of capital mobility depends on government policies restricting or taxing capital inflows and/or outflows, plus the risk that investors in one country associate with assets in another.

A net flow of capital, real and/or financial, out of a country, in the form of reduced holdings of domestic assets by foreigners and/or increased holdings of foreign assets by domestic residents. Recorded as negative, or a debit, in the balance on capital account.

Capital output ratio

The ratio of the quantity of capital to the quantity of output, usually in the one-sector economy of a simple growth model.

An economic system in which capital is mostly owned by private individuals and corporations. Contrasts with communism.

Capitalist

1. An owner (or sometimes only a manager) of capital.
2. Associated or identified with capitalism.

Carbon tariff

A tariff levied on the basis of carbon dioxide that an import's production emits into the atmosphere. The purposes are to treat imports equally with domestic goods that are subject to costly environmental regulation or tax, and also to motivate other countries to use such environmental policies.

The Caribbean Community and Common Market was formed among four Caribbean countries in 1973 and had 15 members as of August 2018. Its purpose is the promotion of economic integration among the member countries and coordination of foreign policies.

The practice of borrowing in the currency of a country where interest rates are low and lending the proceeds in the currency of a country where interest rates are higher, to profit from the difference. Success depends on exchange rates remaining relatively constant. Also known as uncovered interest arbitrage.

Carry-along trade

Goods that a firm exports that it did not itself produce. Practice identified by, and named by, Bernard et al. (2012), who observe that much of trade takes this form.

The Cartagena Protocal on Biosafety to the Convention on Biological Diversity is a 2003 international agreement for "the safe handling, transport and use of living modified organisms (LMOs) resulting from modern biotechnology."

Cartel

A group of firms or countries that seeks to raise the price of a good by restricting its supply and/or by price fixing. The term is usually used for international groups, especially involving state-owned firms and/or governments.

A center that collects, enhances, creates, and disseminates international economic data for use by scholars. The center was created in 1999, is housed at the Department of Economics, University of California Davis, and is directed by Robert Feenstra.

A US-based and focused "nonpartisan research and policy institute" founded in 1981, with a left-leaning bent. Although it focuses mostly on US domestic issues including health and poverty in addition to budgets, it touches occasionally on issues of international trade and its effects.

A European network for economic research in many fields of economics including international trade and international macroeconomics. Its affiliated researchers issue working papers and conduct academic conferences.

"The leading source of multilateral financing for the integration and development of Central America," CABEI acts as a development bank for the region.

Central American Common Market

A group of Central American countries -- El Salvador, Guatemala, Honduras, and Nicaragua -- that formed a common market in 1960, with Costa Rica added in 1962. It largely disintegrated in the 1970s and 80s due to military conflicts, but reformed as the Central American Free Trade Zone (but without Costa Rica) starting in 1993.

Central and Eastern European countries

Refers, informally, usually to the former Communist countries of Europe.

The institution in a country (or a currency area) that is normally (but see currency board) responsible for managing the supply of the country's money and the value of its currency on the foreign exchange market.

1. A free trade agreement initiated 2006 among Albania, Bosnia and Herzegovina, Croatia, the former Yugoslav Republic of Macedonia, Moldova, Montenegro, Serbia and the United Nations Interim Administration Mission in Kosovo. Croatia left when it joined the EU in 2013.
2. A free trade agreement initiated 1993 among the Czech Republic, Hungary, Poland, Slovakia, and Slovenia, later also including Bulgaria and Romania. Its purpose was in part to reverse the bias against trade among these neighboring countries that had developed during the process of transition. This was superseded by the accession of these countries to the Europeann Union.

Central Intelligence Agency

Intelligence gathering (and espionage) agency of the United States government, publisher of the World Factbook.

Latin phrase meaning, approximately, "holding other things constant." Used as shorthand for indicating the effect of one economic variable on another, holding constant all other variables that may affect the second variable. Contrasts with mutatis mutandis.

A form of large business in South Korea, a conglomerate consisting of many companies centered around a parent company. They are family controlled and have strong ties to government. They are similar to the keiretsu of Japan, except that the chaebol do not own banks.

Chain of comparative advantage

A ranking of goods or countries in order of comparative advantage. With two countries and many goods, goods can be ranked by comparative advantage (e.g., by relative unit labor requirements in the Ricardian model). A country's exports will then lie nearer one end of the chain than its imports. With two goods, many countries can be ordered similarly.

Change in consumer surplus

The change in consumer surplus due to a change in market conditions, usually a price change. For a price change, it is measured by the area to the left of the demand curve between the two prices, indicating a gain if price falls and a loss if it rises.

Change in producer surplus

The change in producer surplus due to a change in market conditions, usually a price change. For a price change, it is measured by the area to the left of the (upward sloping part of the) supply curve between the two prices, indicating a gain if price rises and a loss if it falls.

More formally called the Royal Institute of International Affairs, Chatham House is a London-based, independent policy institute whose mission is "to help build a sustainably secure, prosperous and just world."

Cherry-picking FDI

FDI that takes the form of acquiring only better than average firms. To the extent his happens, it makes it more difficult to determine empirically whether FDI improves the productivity of acquired firms.

CHF

Acronym for the currency of Switzerland, the Swiss franc, standing for Confderatio Helvetica Franc.

Chiang Mai Initiative

An agreement in 2000 among the "ASEAN+3" countries to cooperate in four main areas: monitoring capital flows, regional surveillance, swap networks, and training personnel.

Chiang Mai Initiative Multilateralization

An arrangement begun in 2009 among the countries of the Chiang Mai Initiative formalizing a multilateral currency swap arrangement to replace the bilateral swap arrangement that preceded it.

Chicken War

A trade dispute between the U.S. and the EEC that began in 1962 when the EEC extended the variable levy of the CAP to poultry, tripling German tariffs on U.S. chickens. A GATTpanel quantified the damage and led to U.S. retaliatory tariffs on cognac, trucks, and other goods. The U.S. 25% tariff on trucks today is a remnant of the chicken war and is sometimes called the chicken tariff.

Child labor

1. Employment of children under a specified minimum age.
2. Work that is harmful to a child's physical or mental health, development, or education, and that is therefore targeted for elimination by labor standards.

Child Labor Deterrence Act

A bill introduced into the US Congress by Tom Harkin, but never passed, that would have prohibited imports of products produced by child labor.

China International Payments System

Launched October 8, 2015, this is the first step in a system for wiring funds, denominated in RMB, into China and is intended to lead to internationalizing the Chinese currency.

China-Pakistan Economic Corridor

A China-initiated infrastructure project intended to connect China's western Xinjiang region to the port of Gwadar, Pakistan.

A payments system of the Clearing House Payments Company that says it is "the largest private sector USD clearing system in the world, clearing and settling $1.5 trillion in domestic and international payments per day."

Chlorinated chicken dispute

The issue of whether Europe should be able to restrict, or require labeling of, imports from the US of chicken that has been bathed in a chlorine solution to kill bacteria.

Chlorofluorocarbon

A chemical once used in refrigerators, air conditioners, and as aerosol propellants that, when released high into the atmosphere, destroyed the ozone. This environmental danger was resolved by banning these chemicals as well as banning trade in products that included them, through the Montreal Protocol.

The price of a traded good including transport cost. It stands for "cost, insurance, and freight," but is used only as these initials (usually lower case: c.i.f.). It means that a price includes the various costs, such as transportation and insurance, needed to get a good from one country to another. Contrasts with FOB.

The "circular flow of income and expenditure" refers to the fact that income earned in production is spent on goods that were produced, providing the funds to pay that income. In an open economy, expenditure leaks out of that circle as imports, but re-enters as exports or as capital inflows.

Circular migration

The movement of a country's people first out of the country and then back in.

The name used to encompass a wide and self-selected variety of interest groups, worldwide. It does not include for-profit businesses, government, and government organizations, whereas it does include most NGOs.

A system for organizing, recording, and reporting data of a particular kind, such as international trade and industrial output. Typical systems divide data into categories, each assigned numbers. These may be subdivided, using additional digits, so that more digits mean a finer, or more disaggregated, classification.

Classical

Referring to the writings, models, and economic assumptions of the first century of economics, including Adam Smith, David Ricardo, and John Stuart Mill.

A market is said to clear if supply is equal to demand. Market clearing can be brought about by adjustment of the price (or the exchange rate, in the case of the exchange market), or by some form of government (or central bank) intervention in or regulation of the market.

Clearing agreement

A reciprocaltrade agreement between two countries to buy a specified minimum amount of each other's products over a certain time, using a specified clearing currency.

Clearing system

An arrangement among financial institutions for carrying out the transactions among them, including canceling out offsetting credits and debits on the same account.

The proposition that the allocation of property rights does not matter for economic efficiency, so long as they are well defined and a free market exists for the exchange of rights between those who have them and those who do not. Due to Coase (1960).

Coastwise trade

Trade from one location on a coast to another on the same coast, usually assumed to be within the same country. In the US, this is the trade covered by the Jones Act.

Cobden-Chevalier Treaty

A preferential trade agreement between Britain and France that went into effect in 1860. It was followed by a flurry of other such agreements among European countries.

Cobb-Douglas function

A popular functional form for production and utility functions. With arguments X = (X1,...,Xn), the function is F(X) = AΠiXiαi, where A and αi, Σiαi = 1, are positive constants. This function has elasticity of substitution between arguments equal to one. As a production or utility function, it has competitive expenditure shares equal to αi. Due to Cobb and Douglas (1928).

This is the international "food code," consisting of standards, codes of practice, guidelines, and recommendations for producing and processing food. It is administered by the Codex Alimentarius Commission.

1. A number or symbol multiplied by a variable, usually written as preceding that variable.
2. In a regression analysis, the estimated numerical association between one variable and another, often taken to represent the sign and size of the causal effect of one on the other, though really only indicating correlation.

A provision in the agreement between the issuer and the holder of a bond allowing restructuring of that debt if agreed to by a specified supermajority of the bond holders.

Collective action problem

The difficulty of getting a group to act when members benefit if others act, but incur a net cost if they act themselves.

Collusion

Cooperation among firms to raise price and/or take other actions to increase their collective profits.

Columbian Exchange

The exchange of goods, but also populations, diseases, and ideas, that took place between the Eastern Hemisphere and the Western Hemisphere, across the Atlantic Ocean, in the centuries following the voyage of Christopher Columbus in 1492.

In the United States, this refers to the usually higher-than-MFNtariff rates that are applied to countries with whom the US does not have normal trade relations. Most recently (August 2018), only Cuba and North Korea are subject to Column 2 tariffs. (Trade with several countries, including these, is simply prohibited.)

An inter-agency committee of the US government that reviews foreign direct investment into the United States to determine if it might endanger US national security and, if so, stop it.

Commodity

Could refer to any good, but in a trade context a commodity is usually a raw material or primary product that enters into international trade, such as metals (tin, manganese) or basic agricultural products (coffee, cocoa).

The regulations of the European Union that seek to merge their individual agricultural programs, primarily by stabilizing and elevating the prices of agricultural commodities. The principle tools of the CAP are variable levies and export subsidies.

The CEPT tariff is the tariff that a member of the ASEAN Free Trade Area applies to imports that originate in another AFTA country. Unlike conventional free trade areas, the CEPT tariff is not required to be zero, but only between zero and 5%. In addition, countries are permitted to designate products as excluded from the CEPT for several reasons.

Common external tariff

The single tariff rate on a product agreed to by all members of a customs union on imports of that product from outside the union.

Common market

1. A group of countries that eliminate all barriers to movement of both goods and factors among themselves, and that also, on each product, agree to levy the same tariff on imports from outside the group. Equivalent to a customs union plus free mobility of factors.
2. Early in its existence, what is now the European Union was called informally The Common Market.

A trade agreement involving 19 nations (as of August 2018) of Eastern and Southern Africa. It went into effect in 1994, replacing a Preferential Trade Area that had begun in 1982, with the aim of forming a free trade area by 2000 and achieving other trade liberalization and transport facilitation over a period of 16 years.

Common Reporting Standard

A standard developed by the OECD and approved July15, 2014, calling on countries to obtain and share information from their financial institutions, with the purpose of deterring tax non-compliance.

Common tangent

A straight line that is tangent to two or more curves. Used in the Lerner diagram.

Formerly the British Commonwealth or the Commonwealth of Nations, this is a voluntary group of 53 countries (as of August 2018) many of whom had been British colonies in the British Empire. Its mission is "to improve the well-being of all Commonwealth citizens and to advance their shared interests globally."

An organization formed in 1991 of the nations that had been part of the USSR. Current membership (August 2018) includes 12 countries.

Communaute Financiere Africaine

Communaute Financiere Africaine = African Financial Community: a group of Central and West African countries, formerly ruled by France, who share two versions of a common currency, the CFA franc, that is guaranteed by the French treasury.

Communism

An economic system in which capital is owned by government. Contrasts with capitalism.

Community indifference curve

One of a family of indifference curves intended to represent the preferences, and sometimes the well-being, of a country as a whole. This is a handy tool for deriving quantities of trade in a two-good model, although its legitimacy depends on the existence of community preferences, which in turn requires very restrictive assumptions. See Leontief (1933).

Community preferences

A set of consumer preferences, analogous to those of an individual as might be represented by a utility function, but representing the preferences of a group of consumers. The existence of well-behaved community preferences requires restrictive assumptions about individual preferences and/or incomes.

Company

This word has many meanings, but in economics it is usually a synonym for firm.

An amount of money that just compensates a person, group, or whole economy, for the welfare effects of a change in the economy, thus providing a monetary measure of that change in welfare. Same as willingness to pay. Contrasts with equivalent variation.

Compensation

1.The GATT principle that members who violate GATT rules must either compensate other countries by lowering tariffs or making other concessions, or be subject to retaliation.
2. The actual or potential payment made by the winners from a change in trade or other policy to the losers, intended to undo the harm to the latter. Actual compensation is rare, but the potential for compensation is used as the basis for most evaluations of the gains from trade.
3. The wage paid to labor plus other benefits provided by the employer, such as health care costs.

Compensation principle

As a basis for welfare comparisons, the idea that if a policy change (such as a tariff reduction) could be Pareto improving if it were accompanied by appropriate lump-sum transfers from winners to losers, then it is viewed as beneficial even when those transfers do not occur.

The interactions between two or more sellers or buyers in a single market, each attempting to get or pay the most favorable price. Economists usually interpret and model these interactions as among individual economic agents -- firms or consumers. Popular terminology extends also to competition among nations, especially competing exporters.

Competition policy

Policies intended to prevent collusion among firms and to prevent individual firms from having excessive market power. Major forms include oversight of mergers and prevention of price fixing and market sharing. Called "anti-trust policy" in the U.S. One of the Singapore Issues.

Competitive

1. Applied to a market or industry, this usually means perfectly competitive and contrasts with imperfectly competitive.
2. Applied to a firm or a country's products, this means having low price, high quality, or other attractive characteristics compared to other firms or countries. Applied to a firm, this may also include the effectiveness and aggressiveness of its marketing. See competitiveness.

Usually refers to characteristics that permit a firm to compete effectively with other firms due to low cost, superior technology, or aggressive marketing, perhaps internationally. Thus the condition of being competitive (definition #2). Applied to nations, the word has a mercantilist connotation.

1. Two goods are complements if they tend to be consumed together, so that an increase in demand for one is associated with an increase in demand for the other.
2. Formally, one good is a complement for another if an increase in demand for one (or a fall in its price) causes an increase in the demand for the other. Opposite of substitute.

Complementary demand

In the context of development via import substitution, this refers to the need for sufficient domestic demand for any industrial product the production of which is to be encouraged.

Complementary exporting

The export of one firm's products through the distribution channels of another firm.

Complementary slackness

The pair of conditions that capture optimality in the presence of a constraint. For example, to maximize f(x) s.t. x≥0, one requires both f′≤0 and xf′=0, where f′=df/dx. These two conditions assure that if x>0, then f′(x)=0 and if x=0, then f′≤0.

Complementation agreement

1. Free trade agreement2. An agreement between a firm and governments of two or more countries to eliminate duties on its output, in order to attract it to locate in one of the countries.

Complete information

The assumption that economic agents (buyers and sellers, consumers and firms) know everything that they need to know in order to make optimal decisions. Types of incomplete information are uncertainty and asymmetric information.

Complete specialization

1. Non-production of some of the goods that a country consumes, as in definition 2 of specialization.
2. Production only of goods that are exported or nontraded, but none that compete with imports.
3. Production of only one good.
4. Being the only country in the world to produce a good.

A target of European integration, stated in a 1985 White Paper from the European Commission, which was to remove all barriers between national markets so that they would become, in effect, a single European market.

Composite currency

An entity defined as a specified combination of two or more currencies, normally existing only as a unit of account rather than as a physical currency. Examples include the SDR and the ECU.

Composite good

A fictional good that is used in economic analysis to stand in for a large number of goods, usually all other goods than the one that is the focus of attention.

Compound tariff

A tariff that combines both a specific and an ad valorem component. Thus, on an import with quantity q and price p, a compound tariff collects a revenue equal to tsq + tapq, where ts is the specific tariff and ta is the ad valorem tariff.

The Canada-EU trade agreement, the negotiations for which were completed August 2014. It entered into force provisionally September 21, 2017, and awaits (as of August 2018) ratification by each member of the EU.

Comprehensive Economic Dialogue

Conversations between high officials of the US and China that began in 2017 after the first meeting between Presidents Trump and Xi.

Compulsory licensing

A requirement for a patent holder to let others produce its product, under specified terms. Countries may require this of foreign patent holders so as to access a product at lower cost. This is permitted by the TRIPs Agreement for certain purposes, such as protecting public health.

Computable general equilibrium

Refers to economic models of microeconomic behavior in multiple markets of one or more economies, solved computationally for equilibrium values or for changes due to specified policies. The equations are calibrated with data from the countries being modeled, while behavioral parameters are either assumed or adapted from estimates elsewhere.

An analogue to covariance for three variables. For three variables x, y, and z with values xi, yi, zi, i=1, ,n, the comvariance is com(x,y,z) = Σi=1 n(xi-m(x))(yi-m(y))(zi-m(z)), where m(·) is the mean of the values in its argument. Due to Deardorff (1982).

Concave

1. Said of a curve that bulges away from some reference point, usually the horizontal axis or the origin of a diagram. More formally, a curve is concave from below (or concave to something below it) if all straight lines connecting points on it lie on or below it.
Contrasts with convex.
2. Said of a function if the set of points below it is convex, and thus if f(λx1+(1−λ)x2) < λf(x1)+(1−λ)f(x2) where f is the function of a vector x and 0

One of two common measures of industry concentration, defined as the sum of the market shares of the largest n firms. n is some small number such as 4 or 6, and the result is called the "n-firm concentration ratio" or "CRn". The other common measure is the Herfindahl index.

Concertina tariff reduction

The reduction of a country's highest tariff to the level of the next highest, followed by the reduction of both to the level of the next highest after that, and so forth. Also called the concertina rule. This is known to raise welfare if all goods are net substitutes.

Concession

The term used in GATT negotiations for a country's agreement to bind a tariff or otherwise reduce import restrictions, usually in return for comparable "concessions" by other countries. Use of this term, with its connotation of loss for what economic theory suggests is often a source of gain, is part of what has been called GATT-Speak.

Sale of a product at a price lower than the market would indicate. Often part of a package of foreign aid.

Conditional cash transfer

A program in a developing country to encourage pro-growth and poverty-reducing activities by households by paying them cash conditional on behavior. Used especially for education, requiring sending children to school.

Conditional MFN

The levying of most favored nation tariffs on exports of a country only if it has satisfied certain conditions. Members of the WTO can apply conditional MFN only to non-members.

The "foremost independent, not-for-profit applied research organization in Canada." Among other services, it provides data on several economic variables for a number of countries in its Oxford World Outlook.

Confidence fairy

A term used frequently in New York Times opinion pieces by Paul Krugman during and after the global recession that began in 2007, referring to the views of those who believe that the economy can be stimulated by balancing government budgets so as to reassure potential investors.

The costs and inefficiencies that result when a space becomes crowded. For example, costs of international trade may rise due to congestion of ports, if these facilities are not expanded along with trade.

Conglomerate

A company, often a multinational, that includes several unrelated kinds of business.

Consensus

Essentially, this means unanimous agreement, and it is the basis for decision making in the WTO. Formal voting is avoided, and a decision will be blocked if any member formally objects.

Conservative Social Welfare Function

A social welfare function that takes special account of the costs to individuals of losing relative to the status quo, and that therefore seeks to avoid large losses to significant groups within the population. Due to Corden (1974).

Consignment

1. Something that is put into the care of another, as when a batch of traded goods is consigned to a shipper for transport to another location.
2. A method of marketing in which the seller entrusts a product to an agent, who then attempts to sell it on the seller's behalf, or on consignment.

Console

A bond with no maturity date, which instead pays a fixed amount per year forever. Its simplicity makes it a convenient example in textbooks, where it appears much more frequently than in the real world.

Constant cost

This could have many meanings, but when stated as an assumption of an economic model, it means that cost of producing a good, per unit, is the same for all units, and thus does not rise or fall with output.

A technique for decomposing the change in a country's trade into components that correspond to holding its market shares constant in various markets. Introduced to international trade by Tyszynski (1951), it is an application of shift and share analysis of Creamer (1943).

Introduced by the OECD to quantify agricultural policies, this measures transfers to or from consumers that are implicit in these policies. Since industrialized-country agricultural producers are routinely supported by raising prices, CSE estimates are usually negative. See also PSE.

Consumer surplus

The difference between the most that consumers would be willing to pay for a good and what they do pay. For each unit, this is the vertical distance between the demand curve and price. For all units purchased at some price, it is the area below the demand curve and above the price. Normally useful only as the change in consumer surplus.

Consumption

1. The purchase of goods and services by households.
2. The aggregate of such purchases over an economy.
3. The depletion of a stock of something due to use, as in capital consumption allowance.

An externality arising from consumption. Common examples are herd immunity from vaccines (positive) and adverse effects of second-hand smoke from cigarettes (negative).

Consumption function

The function relating aggregate consumption to aggregate income and sometimes other variables such as wealth.

Consumption possibility frontier

A graph of the maximum quantities of goods (usually two) that an economy can consume in a specified situation, such as autarky and free trade. Used to illustrate the potential benefits from trade by showing that it can expand consumption possibilities.

Contagion

The phenomenon of a financial crisis in one country spilling over to another, which then suffers many of the same problems.

A market that, even though it has only a single or a small number of sellers, could readily admit more, so that the pricing behavior of current sellers is constrained by the potential for entry. Term introduced by Baumol et al. (1982)

Continental Free Trade Area

A free trade area intended to include 55 countries of Africa. In March 2018 44 countries signed the agreement, which will go into effect when 22 countries ratify it.

Continental system

The attempt by French Emperor Napoleon Bonaparte to destroy the trade and thus the economy of Britain by a blockade of its trade and by ordering allies of France to cease trade with the British. It was effective only briefly in 1807-08 and 1810-12.

Contingent convertible bond

A debt instrument that functions initially as a bond, but that in pre-specified circumstances converts to equity. The use of these, especially by banks, is hoped to reduce the likelihood or seriousness of financial crises.

The use of a continuous variable to represent time, as in an economic model. Contrasts with discrete time.

Continuum model

A model in which some entities that are normally discrete and exist in finite numbers are modeled instead by a continuous variable. This can sometimes simplify the treatment of large numbers of entities. In trade theory, the most notable example is the continuum-of-goods model.

1. In an Edgeworth Box for consumption, the allocations of 2 goods to 2 consumers that are Pareto efficient. Starting with an allocation that may not be on the contract curve, it shows the ways that the consumers might contract to exchange the goods with each other. Defined and named by Edgeworth (1881).
2. In an Edgeworth Box for production, this term is sometimes also used for the efficiency locus.

Contracting party

A country that has signed the GATT. The term CONTRACTING PARTIES with both words capitalized means all Contracting Parties acting jointly.

Tending to cause aggregate output (GDP) and/or the price level to fall. Term is typically applied to monetary policy (a decrease in the money supply or an increase in interest rates) and to fiscal policy (a decrease in government spending or a tax increase), but may also apply to other macroeconomic shocks. Contrasts with expansionary.

Convention

A statement of principle as to acceptable behavior. For example, members of the International Labor Organization have agreed to a long list of conventions regarding the acceptable treatment of workers.

This is an international legal instrument for the conservation and sustainable use of biological diversity that went into force in December 1993. It currently (August 2018) has 196 parties and 168 signatures.

Convention on International Trade in Endangered Species of Wild Fauna and Flora is an agreement originally among 80 governments in 1975 to use licensing to prevent trade in wild animals and plants from threatening their survival. There are currently (August 2018) 183 countries party to the agreement.

The process of becoming quantitatively more alike. In an international context, it often refers to countries becoming more alike in terms of their factor prices or in terms of their per capita incomes, perhaps as a result of trade or other forms of economic integration.

A currency that can legally be exchanged for another or for gold. In times of crisis, governments sometimes restrict such exchange, giving rise to black market exchange rates.

Convex

1. Said of a curve that bulges toward some reference point, usually the horizontal axis or the origin of a diagram. More formally, a curve is convex from below (or convex to something below it) if all straight lines connecting points on it lie on or above it. Contrasts with concave.
2. Said of a set that contains all straight line segments joining points within it.
3. Said of a function if the set of points above it is convex, and thus if f(λx1+(1−λ)x2) > λf(x1)+(1−λ)f(x2) where f is the function of a vector x and 0

Convex combination

The convex combination of two points (or vectors), x and y, is their weighted average, with nonnegative weights on each: λx + (1−λ)y, where 0≤λ≤1.

Convex hull

The boundary of the set of points that are either members of, or convex combinations of, points from two or more other sets. The convex hull of two or more isoquants consists of the innermost of the isoquants themselves plus the points between them on their common tangents.

A cooperative arrangement among a group of countries in the West intending to prohibit exports of strategic products to countries of the Eastern Bloc. Created in 1949, it was dissolved on March 31, 1994, and succeeded in December 1995 by the Wassenaar Arrangement.

Coordination

Cooperation in setting economic policy, especially across countries, so that policies of different governments reinforce each other rather than canceling each other out.

The conditions that must be met for a country to gain entry to the European Union, as established by the Copenhagen European Council in 1993 and strengthened in Madrid in 1995.

Copyright

The legal right to the proceeds from and control over the use of a created product, such as a written work, audio, video, film, or software. The TRIPs agreement requires that copyright extend over the life of the author plus at least 50 years. The US and many other countries use 70 years.

The rate of inflation excluding certain sectors whose prices are most volatile, specifically food and energy.

Core labor standard

Several labor standards that are considered the most basic and fundamental. The ILO identifies eight conventions as "fundamental," covering the topics: freedom of association and collective bargaining, forced labor, child labor, and discrimination.

British regulations on the import and export of grain (known in British English as corn), mainly wheat, intended to control its price. The laws were repealed in 1846, signaling a shift toward free trade.

Corner solution

A solution to an economic model in which a constraint is binding that might not always be binding. For example, if a country that could produce positive amounts of two goods instead, for some prices, produces only one, that is a corner solution.

A measure of the extent to which two economic or statistical variables move together, normalized so that it ranges from −1 to +1. It is defined as the covariance of the two variables divided by the square root of the product of their variances. Used in trade theory to express weak relationships among economic variables.

Correlation result

A theoretical property of models with arbitrary numbers of goods or other variables that takes the form of a correlation among variables rather than the strict prediction for each one that may not be attainable. Used for comparative advantage and other properties of trade models in higher dimensions.

Corruption

Dishonest or partial behavior on the part of a government official or employee, such as a customs or procurement officer. Also actions by others intended to induce such behavior, such as bribery or blackmail.

Possession of a lower cost of production or operation than a competing firm or country. In the case of countries, this could refer to an absolute advantage, although it is more likely a comparative advantage.

Cost-benefit analysis

The use of economic analysis to quantify the gains and losses from a policy or program as well as their distribution across different groups in a society.

Cost function

A function relating the minimized total cost in a firm or industry to output and factor prices.

A partnership agreement between the EU and the ACP Countries signed in June 2000 in Cotonou, Benin, replacing the Lomé Convention. Its main objective is poverty reduction, "to be achieved through political dialogue, development aid and closer economic and trade cooperation."

An international organization formed in 1956 among the Soviet Union and other Communist countries to coordinate economic development and trade. It was disbanded in 1991. Also known as COMECON.

Council of the European Union

Also called the Council of Ministers or simply the Council, this adopts EU law and policy. It is composed of the national ministers from each member country for the issues being decided. The presidency of the Council rotates every six months among the member countries and chairs most of the meetings.

Counter-cyclical

1. Moving in the opposite direction to the business cycle. That is, tending to rise when GDP falls and vice versa. Contrasts with procyclical.
2. Designed to offset or counteract the effects of fluctuations of an economic variable that rises and falls over time. Examples are increased payments to unemployed workers when GDP falls below full employment, and increased payments to farmers when crop prices fall below some target level.

Counterfeit goods

Products that appear to duplicate branded goods without the permission of the brand owner. If they are in fact duplicates, then buyers benefit from a low price, while brand owners may lose. Often, however, they are inferior copies, useless or even dangerous.

Counterpurchase contract

A form of countertrade in which the foreign seller is required to purchase something from the buyer, usually unrelated goods or services.

Countertrade

Trade in which part or all of payment is made in goods or services. See barter. Countertrade can take several forms.

Countervailing duty

A tariff levied against imports because they are subsidized by the exporting country's government, designed to offset (countervail) the effect of the subsidy.

Country of origin

The country in which a good was produced, or in the case of a traded service, the home country of the service provider. With fragmentation, origin is often ambiguous. For some purposes, such as trade within an FTA, its determination is subject to rules of origin.

Country of Origin Labeling

1. Any labeling of products with their country of origin.
2. Referring to the specific requirement of US law that imported meats be labeled with the country of origin. This requirement was subject to a WTO dispute brought in 2008 by Canada and lost by the US.

Any of several lists of countries ordered by some measure of their performance or characteristics.

Country risk

The risk associated with operating in, trading with, or especially holding the assets issued by, a particular country. In the case of assets, country risk helps to explain why borrowers in some countries must pay higher interest rates than borrowers from other countries, thus paying a country risk premium.

Country size

Any of many measures of the size of a country. For most economic comparisons, however, country size refers to GDP.

Coupon

The interest payment on a bond, so-named because bonds originally were pieces of paper with small sections, called coupons, that were cut off and exchanged for the interest payments.

Cournot competition

The assumption, often assumed to be made by firms in an oligopoly, that other firms hold their outputs constant as they themselves change behavior. Contrasts with Bertrand competition. Both are used in models of international oligopoly, but Cournot competition is used more often.

A measure of the extent to which two economic or statistical variables move up and down together. For two variables x and y with values xi, yi, i=1, ,n, the covariance is cov(x,y) = Σi=1 n(xi-m(x))(yi-m(y)), where m(·) is the mean of the values in its argument.

Cover

1. To use the forward market to protect against exchange risk. Typically, an importer with a commitment to pay foreign currency in the future would buy it forward, an exporter with a future receipt would sell it forward, and a purchaser of a foreign bond would sell forward the expected proceeds. See hedge.
2. To engage in a transaction that offsets an open position.

A set of transactions on two countries' securities and exchange markets designed to profit from failure of covered interest parity. A typical set would include selling bonds in one market, using the proceeds to buy spot foreign currency and foreign bonds, and selling forward the return. See also one-way arbitrage.

Covered interest parity

Equality of returns on otherwise comparable financial assets denominated in two currencies, with the forward market used to cover against exchange risk. Covered interest parity requires, approximately, that i = i* + p where i is the domestic interest rate, i* is the foreign interest rate, and p is the forward premium.

Covered interest rate

The covered interest rate, in a currency other than your own, is the nominal interest rate plus the forward premium on the currency; thus the percent you will earn holding the foreign asset while protecting against exchange-rate change by selling the foreign currency forward.

The condition of being believed. Particularly relevant when a government or central bank tries to influence an economic variable, such as the exchange rate or the rate of inflation, since belief that it will fail induces market responses that hasten that failure.

Credit

1. Recorded as positive (+) in the balance of payments, any transaction that gives rise to a payment into the country, such as an export, the sale of an asset (including official reserves), or borrowing from abroad. Opposite of debit.
2. A loan. For example, a trade credit.

Credit crunch

A shortage of available loans. In well-functioning markets, this would simply mean a rise in interest rates, but in practice it often means that some borrowers cannot get loans at all, a situation of credit rationing.

A country whose ownership of assets abroad exceeds the value of the assets within the country that are owned by foreigners. Contrasts with debtor nation.

Creeping inflation

This term seems to be used both for a rate of inflation that is low but nonetheless high enough to cause problems, and for a rate of inflation that itself gradually moves higher over time.

Crony capitalism

Used to describe a capitalist economy in which government or corporate officials and insiders provide lucrative opportunities for their friends and relatives. Term became popular during the Asian Crisis to describe some of the victim countries, but is now often used elsewhere as well.

The provision of an internationally traded service across national borders without requiring physical movement of buyer or seller, as when the service can be provided by long-distance communication. Mode 1 of four such modes of supply of traded services.

Cross-country regression

The use of regression analysis on data from multiple countries, the purpose being to describe and perhaps explain their differences. For example, regressions of country GDP growth rates on their levels of trade or openness show a strong positive relationship between trade and growth, though without establishing causation.

Cross elasticity

1. An elasticity that has been ignored by a student in a problem set. :(
2. The elasticity of supply or demand for one good or service with respect to the price of another.

Cross-hauling

The simultaneous shipment of the same product in opposite directions over the same route. The export of the same good by two countries to each other would be cross-hauling, if it occurs at the same time.

1. The exchange rate between two currencies as implied by their values with respect to a third currency.
2. Thus, since most currencies are commonly quoted in U.S. dollars, the exchange rate between any two currencies other than the dollar.

The differences in an economic variable that exist at the same time comparing different economic units, such as consumers, firms, industries, or countries. Often used to seek evidence of causes of trade, growth, and other behaviors. Contrasts with time series variation.

Cross subsidy

The use of profits from one activity to cover losses from another. Thus the use of high prices for some of a firm's products, for example, to permit it to price below cost for others. In international trade, this could be one explanation for dumping.

Crowding out

The effect that an increase in one kind of spending can have in reducing another kind of spending. Most frequently mentioned is the effect of an increase in government spending on investment, which falls when an increase in the budget deficit drives up the interest rate.

The view that imports undermine a country's culture and identity -- for example by changing consumption patterns to ones more similar to those abroad, or by reducing demands for domestically produced art and music -- and therefore that imports should be restricted.

1. In an anti-dumping case against imports from more than one country, the summation of these imports for the purpose of determining injury. That is, the imports are deemed to have caused sufficient injury if all of them together could have done so, even if individually they would not.
2. In overlapping free trade areas, a provision that allows inputs from one FTA to qualify as originating under another FTA's rules of origin. May be bilateral, diagonal, or full.

Cumulative distribution function

A function specifying the probability that a random variable will take on values at or below its argument.

Currency

1. The money used by a country; e.g., the national currency of Japan is the yen.
2. The physical embodiment of money, in the forms of paper bills or notes, and metal coins.

Currency area

A group of countries that share a common currency. Originally defined by Mundell (1961) as a group that have fixed exchange rates among their national currencies. [Origin]

Currency basket

A group of two or more currencies, with amounts of each, that may be used as a unit of account, or to which another currency may be pegged.

Currency bloc

1. A group of countries that share a common currency; a currency area.
2. A group of countries that peg their different national currencies to a single currency.

The extent to which the interest rate on bonds denominated in a currency exceeds what can be explained by default risk and expected changes in the exchange rate. What remains is presumed to be compensation for currency risk.

A group of countries that agree to peg their exchange rates and to coordinate their monetary policies so as to avoid the need for currency realignments.

Currency war

1. Efforts by multiple countries to influence exchange rates to their own perceived advantage, at the expense of others. Term used in September 2010 by Guido Mantega, Brazil's finance minister, referring to actions by China, and then by other countries in response, to prevent their currencies from appreciating.
2. This term has also been applied to conflicts between central banks trying to maintain the value of their currencies, on the one hand, and speculators on the other.

Current account

A country's international transactions arising from current flows, as opposed to changes in stocks which are part of the financial account (formerly the capital account). Includes trade in goods and services (including payments of interest and dividends on capital) plus inflows and outflows of transfers.

Refers to prices in the present, rather than in some base year; e.g., "GDP at current prices" means GDP as measured, in contrast to real GDP, or "GDP at XXXX prices," where the latter is measured in the prices of year XXXX.

The practices used by customs officers to clear goods into a country and levy tariffs. Includes clearance documentation and inspection, determinination of a good's classification, and assigning its value as the base for an ad valorem tariff. Any of these can impede trade and constitute an NTB.

An office through which imported goods must pass in order to be monitored and taxed by customs officers.

Customs territory

A geographical area the borders of which are managed, imposing duties and controls on goods entering the area. A customs territory need not be an internationally recognized country, and the customs territory of a country may be larger or smaller than the country.

Customs union

A group of countries that adopt free trade (zero tariffs and no other restrictions on trade) on trade among themselves, and that also, on each product, agree to levy the same tariff on imports from outside the group. Equivalent to an FTA plus a common external tariff.

Customs user fee

A charge levied on traders for the service of passing through customs.